Analysis of AASB Conceptual Framework for Metcash

The report analyzes the compliance of Metcash with AASB Conceptual Framework for financial reporting. It covers objectives, recognition criteria, and qualitative characteristics of financial reporting. The report provides recommendations for other Australian companies to comply with AASB Conceptual Framework.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
Name of the University
Author’s Note

1CONTEMPORARY ISSUES IN ACCOUNTING
Executive Summary
The report is about the analysis of various aspects of AASB Conceptual Framework in respect of
Metcash. It can be seen from the analysis that Metcash has complied with all the required
regulations and guidelines of AASB Conceptual Framework for developing their financial
statements as the aim of the company is to provide the investors with all their needed information
for assessing the financial standings of the company.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
General Purpose Financial Reporting Objectives............................................................................3
Recognition Criteria.........................................................................................................................6
Qualitative Characteristics of Financial Reporting........................................................................10
Conclusion and Recommendations................................................................................................11
References......................................................................................................................................12

3CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
This report takes an honest attempt for the analysis and evaluation of the compliance of
one of the Australian companies with different aspects of accounting conceptual framework. For
the purpose of this report, Metcash, an Australian company is taken into consideration. Metcash
is regarded as a major Australian company involves in the distribution and marketing of different
products like groceries, alcoholic beverages, hardware, fresh produced products and various
other consumer products (metcash.com, 2018). There are three major parts in this report. The
first part involves in the analysis of the objectives of conceptual framework related to Metcash.
The second part involves in analyzing the recognition criteria provided by the conceptual
framework of different financial aspects. After that, the last part involves in the analysis of the
qualititative characteristics of financial reporting for the companies. A conclusion along with
recommendation is provided in the last part based on the whole study.
General Purpose Financial Reporting Objectives
In Australia, the Australian Accounting Standard Board (AASB) has published the
required Conceptual Framework for the Australian companies and they are obliged to follow the
guiding principles of this conceptual framework. The AASB conceptual framework has certain
objectives that Metcash should follow in their financial reporting and they are discussed below:
Objective 1: It is needed for the companies to publish every information that helps the investors
and other users in understanding the present financial position and standings of them. For this
reason, the entities must provide all the information about their financial resources like assets,
liabilities and others (aasb.gov.au, 2018). According to the 2017 Annual Report of Metcash, it is

4CONTEMPORARY ISSUES IN ACCOUNTING
evident that the entity has responsibly published their Statement of Financial Position and this
statement contains all the information related to the economic resources of the entity that is
majorly helpful for the investors and other users in understanding their financial standing. It is
shown below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)

5CONTEMPORARY ISSUES IN ACCOUNTING
Objective 2: According to the AASB Conceptual Framework, the companies are responsible to
release all the required information that is largely helpful for the investors and other users to
ascertain the financial performance of them. This aspect imposes the responsibility on the
companies to provide all the information related to revenue, income, exposes and profit of the
businesses (aasb.gov.au, 2018). It is visible in the 2018 Annual Report of Metcash that the
business entity has released all the information related to their financial performance with the
help of the Statement of Comprehensive Income and it is shown below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
Objective 3: The AASB Conceptual Framework put the obligation on the business entities of
Australia that they are needed to show the change in their financial performance as well as cash
position in their financial reports (aasb.gov.au, 2018). It can be seen in the 2018 Annual Report

6CONTEMPORARY ISSUES IN ACCOUNTING
of Metcash that the company has released the needed information for judging the change in
financial performance through Statement of Change in Equity and Statement of Cash Flows; they
are shown below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
From the above discussion, one aspect is clear that Metcash has released all the
information for their investors and other users of the financial statements for ascertaining the
financial position, financial performance and change in financial performance as per the
conceptual framework objectives.
Recognition Criteria
It is needed for the companies to do proper recognition of some of the major financial
aspects of their business and they are asset, liability, equity, revenue and expense. AASB
conceptual framework has certain criteria that Metcash is needed to consider while doing
recognizing these financial aspects and they are shown below:

7CONTEMPORARY ISSUES IN ACCOUNTING
Asset: According to AASB Conceptual Framework, it is needed for Metcash to follow the
regulations of AASB 116 Property, Plant and Equipment under section 334 of the
Corporations Act 2001 for the recognition of their property, plant and equipment (PPE)
(aasb.gov.au, 2018). Metcash recognizes their PPE in the statement of financial position at cost
value less accumulated depreciation and impairment losses; and straight-line method issued for
depreciation. In Metcash, the recognition of inventories is done by following AASB 102
Inventories and they are recorded in lower of cost or net realizable value (aasb.gov.au, 2018).
These can be shown below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
Moreover, according to AASB Conceptual Framework, Metcash is needed to comply
with the guiding principles of AASB 138 Intangible Assets for the recognition of the intangible
assets of their business (aasb.gov.au, 2018). Metcash measures their business intangible assets in
cost value,
Liability: According to the Conceptual Framework of AASB, Metcash has the requirement to
comply with the guiding principles of AASB 132 Presentation of Financial Instruments for

8CONTEMPORARY ISSUES IN ACCOUNTING
recognizing their interest-bearing borrowings. The 2018 Annual Report of Metcash shows that
the company recognizes their long-term borrowings in fair value basis. For the recognition of the
lease liabilities, Metcash is needed to follow the principles of AASB 16 Leases (aasb.gov.au,
2018). It requires telling that Metcash recognizes their leases at the time of their occurrence. For
the recognition of previsions, the obligation on Metcash is to follow the principles and
regulations of AASB 137 Provisions, Contingent Liabilities and Contingent Assets
(aasb.gov.au, 2018). Metcash recognizes their provisions at the present of any current obligation
due to any past event. These can be seen in below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
Equity: According to the Conceptual Framework of AASB, it is required for the Australian
companies including Metcash to follow the regulations of AASB 132 Financial Instruments:
Presentation to recognize equities (aasb.gov.au, 2018). The 2018 Annual Report of Metcash
shows that the company considers fully paid ordinary shares as equity and it can be shown
below:

9CONTEMPORARY ISSUES IN ACCOUNTING
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
Revenue: According to the Conceptual Framework of AASB, the requirement for Metcash is to
make compliance with the principles of AASB 118 Revenues to recognize the business revenues
(aasb.gov.au, 2018). Metcash recognizes their revenues from different sources at the time to the
inflow of future economic benefits in the favor of the company. It can be seen below:
(Source: mars-metcdn-com.global.ssl.fastly.net, 2018)
Expense: According to AASB Conceptual Framework, the obligation on Metcash to recognize
their revenue at the presence of the probability that there will be outflow of the future economic
benefits against the company. The major business expenses for Metcash are operating lease
expenses, employee benefit expenses, depreciation and amortization, finance costs and others.
Hence, it can be observed from the above discussion Metcash recognizes the major
financial aspects of their business as per the Conceptual Framework of AASB.

10CONTEMPORARY ISSUES IN ACCOUNTING
Qualitative Characteristics of Financial Reporting
Financial information of the businesses becomes more purposeful and useful when they
include the fundamental and enhancing characteristics of financial information. They are shown
below:
Fundamental Qualitative Characteristics: According to the Conceptual Framework of AASB,
Relevance and Faithful Representation are the fundamental qualitative characteristics of financial
reporting. In order to make all the financial statements relevant, Metcash has released all the
financial information for the year 2017 and 2018 and the investors can gain all the required
financial information from their financial statements for investment decision-making (Barth,
2013). Moreover, for ensuring the faithful representation of the financial statements, Metcash has
made compliance with all the guiding principles of Corporations Act 2001, AASB, International
Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB).
This is a crucial step for ensuring the true and fair presentation of the financial statements (Barth,
2013).
Enhancing Qualitative Characteristics: These characteristics help in enhancing the usefulness
of the financial information; and they are Comparability, Verifiability, Timeliness and
Understandability. It can be observed from the 2017 Annual Report of Metcash that the company
has provide the financial information of both 2017 and 2018 so that the users can compare the
financial information (Henderson, et al. 2015). Moreover, the users can also compare the
information with the other companies. Apart from this, the users of the financial statements of
Metcash can verify the used assumptions and accounting estimates from the notes to the financial
statements of Metcash. Thus, the presence of verifiability can be seen. For the aim to maintain
timeliness, Metcash publishes their quarterly, half-yearly as well as annual financial report for

11CONTEMPORARY ISSUES IN ACCOUNTING
ensuring the accessibility of the information by the users while needed. Lastly, all the required
classification, justification and explanation of different financial aspects can be seen in the noted
to the financial statements in the 2018 Annual report so that the users can gain required
understanding (Barth, 2013).
Conclusion and Recommendations
It is evident from the above discussion that the management of Metcash has taken into
consideration all the objectives of AASB Conceptual Fretwork while preparing their financial
statements. Moreover, full compliance with the recognition criteria of AASB is evident from the
side of Metcash for measuring asset, liability and others. Lastly, it can also be seen that the
financial information of Metcash includes both the fundamental as well as enhancing
characteristics of financial information that is helping Metcash in making their financial
information more purposeful for their users.
As per the above analysis, it can be recommended to other Australian companies that
they are needed to make compliance with all the guiding principles of AASB Conceptual
Framework so that they can avoid major issues in accounting.

12CONTEMPORARY ISSUES IN ACCOUNTING
References
Aasb.gov.au. 2018. Conceptual Framework For Financial Reporting. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf> [Accessed 11
August 2018].
Aasb.gov.au. 2018. Financial Instruments: Presentation. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB132_07-04_COMPoct09_02-10.pdf>
[Accessed 11 August 2018].
Aasb.gov.au. 2018. Inventories. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-04_COMPjun09_01-09.pdf>
[Accessed 11 August 2018].
Aasb.gov.au. 2018. Leases. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB16_AmendStd_02-16.pdf> [Accessed
11 August 2018].
Aasb.gov.au. 2018. Property, Plant And Equipment. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf>
[Accessed 11 August 2018].
Aasb.gov.au. 2018. Provisions, Contingent Liabilities And Contingent Assets. [online] Available
at: <http://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-
14.pdf> [Accessed 11 August 2018].

13CONTEMPORARY ISSUES IN ACCOUNTING
Aasb.gov.au. 2018. Revenue. [online] Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPoct10_01-11.pdf>
[Accessed 11 August 2018].
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a
difference?. Australian Accounting Review, 23(3), pp.232-243.
Mars-metcdn-com.global.ssl.fastly.net. 2018. 2018 Annual Report. [online] Available at:
<https://mars-metcdn-com.global.ssl.fastly.net/content/uploads/sites/101/2018/07/24145704/
Metcash-Annual-Report-2018.pdf> [Accessed 11 August 2018].
Metcash | Australia’s leading wholesale distribution and marketing company. (2018). About Us -
Metcash | Australia’s leading wholesale distribution and marketing company. [online] Available
at: https://www.metcash.com/about-us/ [Accessed 11 Aug. 2018].